Yves here. Many readers will find the criticisms in the post to be understated. For instance, it’s odd to see Frank spend so much time on the difficulty of shopping for health insurance, when the problem of shopping for medical services is even greater due to the vast information asymmetries. Prices are famously opaque, particularly for surgeries and hospitalizations. You as a patient can’t do a very good job of assessing whether your doctor is any good, and most people wind up relying on proxies like bedside manner that can be misleading. And American doctors love to overtest and overtreat, and that is enabled by patients who have been encouraged to expect too much of medicine.

By Jag Bhalla, an entrepreneur and writer. His current project is Errors We Live By, a series of short exoteric essays exposing errors in the big ideas running our lives. Follow him: . Originally published at

interview with Economist

Fans of “let-the-market-decide” thinking face a trillion-dollar puzzle that’s deadly as well as costly. To diagnose this unhealthy situation, we’re fortunate to have Robert Frank (RF), an economist who writes regularly for The New York Times (he’s also I regularly quote).

JB:I’ve long felt that core economic ideas (~creeds) are ailing and failing to meet clearly desirable collective goals. Your provides a great and glaring example, as you say America “spends far more on health care than any other nation, yet gets worse outcomes.” What are the numbers (per capita)?

RF:American per capita health care expenditures are of those in the 35 advanced countries that make up the Organization for Economic Cooperation and Development. That was a spending difference of more than $5,000 per person in 2016. But although we spend 18 percent of our national income on health care (or $1.65 trillion more annually than if we spent at the average OECD level), our system delivers significantly less favorable outcomes on the measures we care most about. Among developed countries, for example, we have the lowest life expectancy, the greatest incidence of chronic illnesses, and the highest infant, child, and maternal mortality rates.

JB:Why does America’s more market-oriented system (unique among rich nations) do so badly? How does the persistence and worsening of inefficiencies square with the markets-deliver-efficiency creed (the deep faith that markets self-organize to everyone’s benefit and incentives ensure efficient resource usage)?

RF: No developed country other than the United States relies on largely unregulated insurance companies for the provision of health care. As I explained in , we almost certainly would have adopted the single-payer systems common in other countries except for a regulatory loophole during World War II.

The problem with private insurance is that it tends to break down when potential policy holders have much better information about their individual risks than insurers do. That information asymmetry is clearly present for individual risks of illness. People who know themselves to be most at risk of needing costly care are more likely than others to buy insurance, which drives premiums up, making insurance less attractive to the healthiest people. As those people drop out of the insured pool, rates rise further, which makes insurance still less attractive to the healthiest policy holders who remain, and so on. Economists call this an adverse-selection problem.

The American health insurance system was in the throes of the resulting death spiral when the Affordable Care Act was adopted. That legislation reversed the decline in the insured population and made tentative first steps at cost control. But it was not enough to eliminate our system’s glaring inefficiencies.

JB:Can you say a bit more about why the US spends so much more?

RF:Administrative costs under private insurance plans, for example, are about six times as high as under single-payer plans like Medicare. And unlike private insurance plans, single-payer plans spend virtually nothing on advertising and marketing. But by far the most important reason for higher health care costs in the US is that service providers charge so much more here than elsewhere. The average cost of coronary bypass surgery, for example, is more than three times higher in the United States than in France, and a day in an American hospital costs twelve times as much as one in The Netherlands.

JB:When Republicans were campaigning to repeal the Affordable Care Act, market enthusiasts like Paul Ryan insisted that competition among private insurers would lead to both lower prices and higher quality health care. Competition seems to have delivered high-quality goods at reasonable prices in many markets. Why shouldn’t we expect the same with health care?

RF:Economic theory tells us that this would be a reasonable expectation if certain conditions were met. Many of these conditions concern whether buyers and sellers can assess the attractiveness of transactions they are considering. Because insurance companies find it difficult to measure the risks posed by potential policy holders, we get the adverse selection problem described earlier. A related problem arises on the buyer’s side. In practice, people have little knowledge of the treatment options for the various maladies they might suffer, and policy language describing insurance coverage is notoriously complex and technical. Although consumers can easily compare the prices charged by competing insurance companies, they simply cannot make informed quality comparisons in this industry.

Because of the latter asymmetry, companies are under pressure to compete by highlighting the lower prices they’re able to offer if they cut costs by degrading the quality of their offerings. For example, it’s common for insurance companies to deny payment for procedures that their policies ostensibly cover. If policy holders complain loudly enough, they may eventually get reimbursed, but the money companies save by not paying others enables them to offer price cuts, which are a decisive competitive advantage over rivals that don’t employ this tactic. Such tactics are essentially absent under single-payer systems like Medicare.

In short, market competition often does deliver the benign results that its proponents claim, but only when important conditions are satisfied. In markets for the delivery of health care, many of those conditions just aren’t met.

JB:So the very same “self-interest” that drives markets, in practice often becomes collectively pathological. Your NYT piece ends on an optimistic note by saying, “there are attractive paths forward” to fix this deadly “national embarrassment without requiring painful sacrifices.” How can we overcome the “self interest” of those gaining from the current $ trillion overspend?

RF:Steps that would permit an orderly transition to Medicare-for-All are described in a recent by the Yale political scientist Jacob Hacker. has been suggested by policy analysts at the Center for American Progress.

My remark about no painful sacrifices being required for this transition was about the citizens whose tax dollars would support a single-payer system. Since the overall cost of single-payer would be so much lower than under the current system, the switch would actually save money for most of those taxpayers. But because the tax increases required to pay for the switch are far more visible that many of the hidden levies that pay for our current system, we’d want to explain carefully why people’s net outlays for health care would actually be going down.

Because the biggest savings associated with single-payer come from reduced payments to service providers, the switch would require American doctors and administrators to work for significantly less than they currently earn. But how painful would those sacrifices be? We know that highly qualified people are eager to become health-care professionals in countries where providers earn nothing like the premium salaries we see here. If you saw Michael Moore’s interviews with British NHS doctors inSicko, you probably were struck, as I was, by how content they seemed with their standard of living.

A consistent message from the happiness literature is that once a certain absolute material standard is achieved, satisfaction from pay is heavily reference dependent. For doctors to be happy with their pay, they must earn as much as other doctors in the same environment earn. Another consistent message from this literature is that the comparisons that really matter are highly local. That helps explain why American doctors who work for non-profit clinics like Mayo, Cleveland, and Kaiser, who earn substantially less than their fee-for-service counterparts while delivering measurably better health outcomes for their patients, nonetheless seem quite content with their terms of employment. My own view is that asking fee-for-service physicians to work under such contracts here would not qualify as demanding painful sacrifices from them.

Doctors like the ones Atul Gawande profiled in would no doubt scream bloody murder if forced to live on only what they could garner under Medicare reimbursement rates. For some of them, the switch really would constitute a painful sacrifice. I probably should have written the last sentence in my column as “Avoiding this national embarrassment would actually require few painful sacrifices.”

JB:It’s critical that we inject more realism into economic creeds (“just so” stories). Without more market realism (“realonomics”?) we won’t be able to detect and diagnose when markets get stuck in counterproductive conditions (where chronic inflammation or cancerous growth imposes a “private tax” burden on individuals and businesses (~$19k per employee).

There’s something in what you say. I was traveling through Cuba a few years back when a travel mate of mine stumbled off a curb in her bad shoes, turning/dislocating her ankle to horrific degree. In the ER in downtown Havana, she was promptly treated by an engaged and energetic staff at no charge. I was later informed by our cicerone that a doctor in Cuba makes little more annually than a librarian. The takeaway for me was that, in Cuba, the only injunction to go into medicine in the first place is to be a good practitioner.

That doctors and librarians make similar $$ seems about right to me. Similar values to society, similar dedication. The only, *ONLY* reason that MD’s can charge so much more is b/c although your life and society may be poorer if you don’t get that book, you personally won’t die immediately.

I consult a large conglomerate in Dubai that has a health care arm. Their costs are substantially lower than in the US. Health care is a pure for profit system there. Costs for medicine at the pharmacy was nearly free when I was an employee. The level of care is much higher than the US. Is capitalism the problem?

Hospitals have to care for the uninsured indigent. The cost of this is part of their operating expenses which are in turn covered by prices charged the insured, not yet indigent. This is what those, like Mr Frank ignore as they scape-goat providers rather than the so-called market based medical care system which…I believe..like any market system is all about costs, prices and competition or lack thereof. The alternative to the market-based US model, as it is called, is the type of medical system in SE Asia and other places. We can call it the all at SEA model. With this approach the poor have no access at all to health care and die from any number of curable illnesses. They die at home and if they have no home, they die on the streets. Sometimes they are carried into hospices like those run by M Teresa and they die there. Ordinarily if they do die on the streets, their bodies are taken somewhere and burned. Or buried. Depends. Here the population average costs is quite low…once you average in all the people who pay zero for health care and get none.
A negative effect of the SE Asia system is the knock-on public health effects of the many untreated communicable diseases from which they may die. The US failure to ensure the safety of the water supply encourages movement towards what I am sure Mr Frank would call this model of health care.

So we have the SEA Model, the European/Canada/UK model, the US model, and so forth. How to judge them? Should the criteria used to be the ‘price’ of personal health, as is implied in the discussion? On that score roughly 50% of US people who are fully insured pay almost nothing for very good personal health care whereas the 30% of US people who are uninsured pay their entire net worth. Here the average cost for health care is? Hmmmmmm

We have the Swiss system already without the limits on insurance pools which limit gaming the system, without the price controls and without stupid tiered system which denies much of the populace access to subsidies they would have in Switzerland. Oh and they don’t pretend that employers should provide insurance no matter how inadequate. IOW we have the corporate toady version of the Swiss system which is what the Republicans intended when they revised it for the Dole plan.

Forget Switzerland, we are already paying enough to have the best, think France. Oh, and they have some private insurance as well for “extras”.

It seems to me that stories like this are a sort of safety valve. As Yves noted in the preface, the criticisms are mild, if not absent. In another context it would be called a “limited hangout”. All leading to some sort of “reasonable” compromise.

Why can’t the harsh, aggressive tone that’s used in say, promoting all the wars the military is involved in (or even the tone in the business press about “winners”), be applied to the failure, the unacceptable failure, that is our health care “system”. Someone to say this is unacceptable, that there is no reason to have a health insurance “industry”, and that the whole thing is shameful.

When I am in the Doc’s office, I mention this to everyone I come into with. Making sure to not make it personal, all about the system, etc. They, in all fairness, might not be able to offer an honest response. However, the sort of passive acceptance of their role in this whole thing makes me angry.

There is almost as much obesity in the UK as in the US, but they still deliver health care way cheaper than we do. The NHS is under strain now, but that has largely been created by the Tories to justify privatization.

The problem with capitalism is the rise of the Administrative class. Beyond a basic amount of necessary administration we have parasitic behavior taking a large amount of capital. We see this in most public unionized services such as education, law enforcement, fire fighting and government. We see it also in Universities and Medical. The result is ineffective service delivery often bordering on incompetent with very high cost in every case. The actual service delivery people are outnumbered by the parasites.

The Commons is much less expensive than private enterprise, as the commons, publicly provided services do not incur marketing and sales costs, and have to pay a profit.

What you propose,

1. Private fire brigades, have been tried and DID NOT WORK, because fire spreads.
2. Private armies, Mercenaries, are not willing to die for their cause.
3. State run Medical systems, as in Europe, are 50% of the cost of the US system.
4. The greatest advances in longevity are delivered by Public Health efforts, clean water and air, less pollutants, inoculations, good pay, and long vacations.
5. Roads, airports, basic research and other services are for the public good.

Private enterprise has greater costs than public services, marketing and sales consume revenue in the private sector, and private profit is completely dependent on public services for the public good.

You do not appear to understand the foundation of any civilization is the commons, for the common good.

Are you saying State employees building State highways are cheaper than contractors?
You are going to have a city manager with city engineers build an airport?
Public school teachers can teach algebra to students cheaper than a good tutor?
Rules and regulations make up much of the cost. Will single payer work on the state level ?
I am all for public health if it was lean and mean, but every one is a sissy.

“That helps explain why American doctors who work for non-profit clinics like Mayo, Cleveland, and Kaiser, who earn substantially less than their fee-for-service counterparts while delivering measurably better health outcomes for their patients, nonetheless seem quite content with their terms of employment.”

Substantially less? Having been a physician for Kaiser, we are in big trouble if this is the metric.

In the hands of the medical industrial complex, Kaiser’s model of “preventive care” for their WW II ship builders has become commodified as it works under the ACA. After all, false positives and lowered disease thresholds plump up profits when diagnostic tests and drugs prevail upon the worried well. See:

I have been partially baffled by large, sophisticated corporations that are squeezing subcontractors on every front, but seem unable to dent health insurance cost increases.

I say partially baffled, because it is clear that employers have been substituting health insurance cost increases for pay increases to staff. so employees are effectively paying at least some of their income in insurance costs, even if not directly paid, for by getting lower pay raises or even pay cuts over time.

I think the rise in health insurance costs is a key reason why household median income has varied between stagnant and declining over the past 20 years.

However, if large Fortune 500 companies are unable to wrangle their health insurance costs in the same way they negotiate other vendor services, then it is clear that this is a system that cannot be managed using “free market” principles. Every year, we get new Master Service Agreements bid requests from clients who expect to see their costs cut by several percent over the previous MSA terms. But that never seems to happen to the health insurance companies.

The US does not have a healthcare system designed to make patients well and that spends in preventative medicine. What it has is a system that allows the corporate world, the pharmaceutical industry, the insurance companies, the hospitals, and a few other companies to extract economic rent.

There are quite a few doctors too who are in it for the money. I think that in the US, that is why doctors are not held in the esteem they are in the rest of the world. I have met good American MDs before, but there are a lot who I get the strong impression that they are there for the money.

That is what this fight about universal healthcare is. Their rent seeking would not last very long in a universal healthcare system. I think that deep inside, they know that if they had to face a universal healthcare system and compete, they would be broke. At most it would be a 2 tier system like that of France.

The so called free market is nothing but a rationale for this rent seeking. There is opaque and often arbitrary pricing, along with a lot of areas where the certain special interests take their cut.

Ultimately the problem is that the system is capitalistic. It is designed to exploit the ill. It is literally a dream market for rent seekers. Apart from food, healthcare is one of those areas where price sensitivity is relatively low. You need healthcare when ill. That is why the fight is so important – lives are at stake and in the case of the corporations, billions in profits too.

“4. The greatest advances in longevity are delivered by Public Health efforts, clean water and air, less pollutants, inoculations, good pay, and long vacations.”

This cannot be repeated enough; many/most people don’t get it. Sewers, which date to at least 3000 bc, have improved health and longevity more than all the MRI’s in the universe.

It’s the difference between public health and the sick-care practiced by modern medicine in search of obscene profits Even as technological interventions have made remarkable advances, it does not substitute for healthy individuals embedded in a healthy society/environment.

That’s where the rubber hits the proverbial road in the (eventual) implementation of universal medicine in the American backwater.

Collectively paying obscene amounts for substandard care, largely in the last few months of life wired into a borg-like training hospital for resident’s hazing rituals, is not the solution.

To add to that list: of the things medicine has given us, vaccinations and antibiotics are far and away the most important in improving public health outcomes. Everything else pales.

And to your point re vacations, although a lot of our obesity epidemic is due to food companies successfully pushing bigger portions and processed foods with more sugars in them, I have to think a big portion is also due to Americans working longer hours and having more job stress. When I was a kid, a lot more adult men in their 20s to mid 40s played on an amateur sports team or would go out and shoot baskets or play tennis with their buds (and back then, people didn’t use carts on golf courses, so you got exercise). Now maybe some of them jog or go to the gym instead, but it’s psychologically less rewarding. And it is not hard to imagine that at least some of American overeating is stress related.

Just adding to this re stress, longer hours, etc. When I was growing up, my Dad was a big wig at ABC, and later at other media companies. We lived in the suburbs and Dad left for NYC at around 8:15 am and was ALWAYS home between 6-6:30 pm. This is not possible today…especially for the kind of job he had.

The argument that MD, healthcare providers would take a pay cut if the US uses single payer is silly, because Obamacare is presently undercutting pay. Patient satisfactions scores take a chunk out of CMS (Medicare & Medicaid) reimbursement, not meeting certain metrics (ex: giving surgical patient IV antibiotics in timely manner, CHF patients appropriate meds), bundled shared payments (ex: joint replacement-one lump sum paid & divided between everyone that services-including outpt rehab) & not covering cost of hospital stay of certain people readmitted within a thirty day period from discharge. Every year new criteria is added & percentages withheld (or bonus that probably only Mayo gets) increases.
Having electronic records probably makes it even easier to withhold funds, no wonder CMS wants everyone to get rid of paper. Then again I could just be crazy

And why are MDs immune? All sorts of people have been taking pay cuts, from non-C-Level corporate employees (this started in the 1990s, jobs that used to pay $250-$350K now pay $150-$200K) to even investment bankers.

It is not the individual doctors/surgeons – it is the hospitals that they work for operating as for profit institutions. I had two hip replacements 3 years apart and I went to a specific surgeon for the kind of procedure that I wanted – less recovery time, trauma, etc. In those three years, the actual surgeons fee did not change….but the hospital’s fees went up tremendously. A two night stay for “room and board” was 68K three years ago…..this past January the hospital billed my insurance company 72K for less than 24 hours in the hospital….just for “room and board”. There was also “pressure” on me to stay more than one night even though I didn’t want to, could walk, had amazing lab results and could easily do all that the physical therapist asked me to do. I certainly would not be surprised if my surgeon was being pressured to “encourage” patients to stay at the hospital longer – for an added bonus.

This is what happens when hospitals and doctors are “corporatized”…and it’s not pretty.

“Because the biggest savings associated with single-payer come from reduced payments to service providers, the switch would require American doctors and administrators to work for significantly less than they currently earn. But how painful would those sacrifices be?”
The biggest savings would probably come from being able to get rid of all the middle managers coming up with creative ways to prevent 30 day readmits, increase pt satisfaction, get private insurance & CMS to reimburse for services, put a waterfall in the lobby, lobster on the menu, etc…once we had single payer. Obamacare is already slowly eroding healthcare provider pay anyway. Quality care & satisfaction usually comes from people at the bedside, especially we low level people expected to do more with less.
Meanwhile CEO of BCBS just got stock bonus.

Doctors already took a pay cut (and an increase in micromanagement and bureaucracy) with the proliferation of HMOs in the last two decades. I worked at a hospital and the long-time employees noted how the cars in the doctors’ parking lot had become less impressive since the 80s — fewer Porsches, Mercedes and such, more middle-class Toyotas and Hondas.
The US insurance system is universally loathed by the MDs. The better-connected doctors bailed out to do concierge medicine for the rich.

In the New Yorker piece, from 2009, it is said that what changed was the attitudes toward money.
That sums it up nicely across multiple industries.
Journalism has been destroyed because it became focused on “making” money rather than informing the citizens. Education is being destroyed by those who make its purpose generating profits rather than teaching the citizens. War for security vs war for profit. Prison for punishing criminals vs prison for generating profit.
This ties, too, to the Silicon valley woman from a while back talking about the loss of meaning in work. Some NCers get snarky about that, but I agree with her.

What do we do our jobs for? Any job has meaning when it contributes to value in the world. Cleaning toilets, because they need to be cleaned. Helping the elderly, because they need help. It’s when the goal stops being the thing it’s supposed to be and just becomes about money that things go bad.

I hardly here much about the health system of Canada. the relationship to business and how it works in Canada. how does this affect the cost of doing business?
I know very little about how Canada “works” its’ healthcare and business. and labor costs or other differences in business. Or is Canada “Americanized” where society is an afterthought.

that’s so amazing, for me. that Canada is right next door and i hear little about the differences between what i think comes from their healthcare system i had heard was originally from Saskatchewan,and then all over Canada. a National system.

i wonder why that is? i would like to know more about Canada’s health care. i had wanted to move there, but now it’s so expensive. like all the good places, they have been “bought” out by the rich.

Putting on my psychopath hat, I am trying to imagine how the US healthcare system could get much worse and unfortunately came up with an answer. This was in fact inspired with what I was reading in this article and its tone so here goes.
How about a law that anybody that wants full health healthcare in the US submit to a DNA test. You can refuse it but that will mean that you will pay the absolute maximum rate – or even be refused healthcare. The healthcare companies will analyze your DNA (for which you will pay, just like with Ancestry) and any conditions or diseases that your DNA shows a predilection for, you will not be insured for that condition. If you are free and clear, you will pay minimum rate.
You can see what they will say. Why should ordinary people pay the insurance for those whose DNA will make them sick. It’s not fair! They are costing you money! And these tests will make it cheaper for most people so they will save money. The healthcare companies will love it because they can monetize all that DNA data to the hilt and never share the profits with the people that gave it. The government will love it because it will be a total DNA database that they can copy and tap into for their own purposes. So, win-win?
Dr. Evil mode disengaged.

Great comments. Even libertarians presented themselves as pinatas. Missed entirely is the essence of competitive health care insurance.

Because of the latter asymmetry, companies are under pressure to compete by highlighting the lower prices they’re able to offer if they cut costs by degrading the quality of their offerings. For example, it’s common for insurance companies to deny payment for procedures that their policies ostensibly cover. If policy holders complain loudly enough, they may eventually get reimbursed, but the money companies save by not paying others enables them to offer price cuts, which are a decisive competitive advantage over rivals that don’t employ this tactic. Such tactics are essentially absent under single-payer systems like Medicare.

Fraud is the business model that brings in the most ill gotten gains. No “customer” knows what the price is or should be, every price is tailored to the maximum that can be extracted from any individual customer, there is a high risk that when you use the “good” purchased it fails completely and one is forced under financial penalty to make a purchase.